tv Charlie Rose PBS November 3, 2009 11:00pm-12:00am EST
>> rose: wcome to the broaast. tonight, a lk at our economy first th the director of office of management and budget, peter orszag. >> concern abo the deficit is widespre but all of the specific steps tt you could ke to address e defici run into eitr constituency politics or oth problems. it's so very popular to complain about the decit but many of the specic steps that you could take to addre it are popular. that is e fundameal challenge that we e facg and thise need helpboth from the american public and congre in addressing. >>ose: then popular ar thor and historian neal fergus. >> the u.s continueo run the deficit over a ten year horizon. and you lookurther than ten years-- because it very important to do tt-- and take
to account the unfunded liabilitys of e medicare and social security stems, the position of the united states verges on bankruptc because although we have a $10 trillion debt, the unfunded liabilities are $100 trillion. at's something that sms to me one c't likel dismiss. >> ros a program note. we iended to show you this eving interviews with our friends malcolm glad well and jojohn grism but because of theconomic story, w will show you those interviews at a later time. tonigh orszag and ferguson when we continue.
captioningponsored by se communications om our studios in new york city, this is chlie rose. >> ros peter orszag is here, he ithe director of the oice ofanagement and budget. called more than just the budget rector by the "new yorker" magazine, he' deeply invved in psident obama's ambitious dostic agenda as well. that includes healt care, ener policy and entitlement reform. he's focus tong country's long-term fiscal healt the ministration rently released pjections showing defici growing by $9 trillio over the nex ten years. speaking at new york uversity earlier today, peter orszag sai the government is permitted to putting the cntry back on firm fiscal footi. i'm pleased to haveim back at this table to tell us how ey're going to do that. welcome. thanks for having m >> rose: everywhere go, whoeve we tal to,ays in the
end main stree, on wall street, among foreign leaders who stop at th table they worry about the ficit. does america have too much debt that itannot bring the political will to do sething about it. >> rose: wel,let's reaze we acally have two deficits. one is th fisca deficithis which we need to bring down, but we also have thi g.d.p. deaf which we arerying to workur way out of. >> re: explain the g.d.p. deficit meaning. >> there's aap between how much the economyould produce and w much it's currently producinwhich at the beginning ofhis year was estimated to amou to more than a trillion dollars. totart to fill that hole,we had to te steps like the covery act to try to get the economback on its feet. so the problem would be challenging if it were just a fiscal one. but weave the dual deficits and need t aress both. and that makes it even more challenging. >> rose: because the rrent accounts deficit as well.
>> which is a reflectn... now one of the strikin things is we really are living an exceptional time. normally higher budt deficits-- and, again, last year we had a $1. trillion deficit.... >> rose: this is theiscal year th ended in septeer 31 of 2009? >> correct. it uld show up as some combinatioof higher interes rates d increased borrowing from aoad. some combinationhereof. instead we'veeen very low intere rates and a decline in the current account decit from 6% of the economy in 2006 to under 3% now. >> rose: because of the economic crisise're going through. because of the economi crisis that we'regoing through. in a sense, for right now, at least, the treasury is the last borrower last standing. and if you look atotal borrowing, public and private combined it's downramatically overhe pass three years. the reason however, and that reects the exceptional economic downturn that wve been experiencg, the reason we need to address ou defits on a going forrd bas is a private borrowing start to pick up aga, as consumption and
busine investment start to pick up ain, that will no longer be the case andt that point financing the deficit will be crowdingut private invest orausing more borrowing fm abroad, and that's a problem we need .... >> rose: that's a disasr. >> tha is...e need to... as saidhis morning, th is the serious problem and the outyear deficits are unsustainable. they he to come down. i also, though, think recognizing that pblem and the need for action, is wth pausing and rememberg how we got here. you mentioned tt $9trillion projected deficiover the next decade. at basically reflects three things: the first is t failure to pay for two policies in particular, the 2001 and 2003 tax cu and the medicare prescription drug nefit. those were deficit finand. over the nextecade they account for $5 triion. second, the economic doturn because it trigger the soalled automatic stabilizer which is raise uneloyment
benefits, raise fd stamps, they cause... revenue tendto decline dung an economi downturn. all of which is beneficial because it helpso mitigate the g.d.p. deficithat i was talking about. it also add .5 trillion to the deficit. finally, the recovy act accounts for les than 10% of th total. so basically, the9 trillion ojected deficit can be entirelyccounted for by t failure to pay for policies in the past, theeconomic doturn, and the steps we've had to ke to combat that downturn. which is not t say aion isn't necessary, it absolutelis. but it's importanto reaze we didn't get hereby accident. >>ose: is this administration in favor of extending employmentenefits? >> there are a wle seriesof questions that we are facing as we come to t end of the year, including unemployment benefits. i expe there will be some extensn of unempyment benefits. >> rose: becse people like ariannahuffington areoing around saying to me and others
that the problem is with the administration is rry summers against extending unemployment benefs. >> ion't want to speak about the views of indivual members of the econoc o otherparts of thedministration, but i don't think that the view coming from the administratn or,rankly, from an members o the economic.... >> rose: anydy. because the dision had been made or becausehat would not be the decision? >> i don't think..i have not hed any commentary suesting that any one ispposed to extending unemployment benefits. >> rose: so larry summers or anyonelse... >>gain, i don't want to get into specific inteal discussions, but don't think at. >> rose: wheyou look at $1.4 trillion deficit for theost recent yr, last year, 2009, you are the end the first term of this ainistration-- not knowing whetherthere will be second term or not-- saying you're gog to halfhat deficit. >> yes. that's a commitmt the president made and we e in the dst of a policy process. we have a dget comg out in
february. that budget will inclu proposals to put us back on a fiscally sustainable crse and also refle cuttinghe deficit in half the end of the president's rst term. >> ros and whatre those proposals? >> without speaking to the internal process.. >> rose: faienough. >> ...the are both process suggestions. for example,here's lots of discussionn the congress about whether a fiscal commission would he. and can talk more about... >> rose: a deficit commission, essentially. >> a deficit commission. senator conrad, for emple, has been a leade in putting that idea forrd. others are cong forward with specific ideas about h to save money. ll give you a simple example. we wenout andsked federal emplees "what would you do to make you ancies work more efficienly." throh the what we call the save award. we got tens of thousands o responses and we're reading those. members of congres are also writing letters and feedininto thisrocess. there's lots of ideas floating around. so in february we'llcome
foard with our judgmenabout the best way forward. >> rose: tell me how you fee aboua value-added tax as an additional soue of revenue. >> that is an idea that hasbeen talked about in academic circles. i haven' heard any direct policy discuion of thatind of proposal. >> ros does it have merit? >>here are academic arguments in favor of it; there are argumentagainst it. >> rose: well peoplelike roger altman come tohis program, former depysecretary of the treasu... >> ...and talk about it. agn, look, the arguments that have been put forward for a value-ded tax, other countries do it, it can be in tho other countries a sufficient y of raising renue. the other hand, there's concerns abou its regressivety and aboutow it wouldnteract th the rest of the tax cod here in the united states. and weon't have aalue-added tax. so, aga, i don't.. again, it'sbeen discued in academic circles. i have n heard sious policy discuson of it even ming from capit hill. so it seems like mor of an
academic idea at this point than an idea that's directly in the mix in terms of picy. >> rose: what's gng to be the biggest contributor to defic reduction? >> well, over the long term i think need to be very clear that it is n possible to tax your way out of the fisca trectory that we're on. and further more, it not possible to reduce spending ouide of healthcare sufficiently toddress our.... >> rose: that means defense and. >> right our long-ter fiscal problem is dispropoionately influenced by the rate at which healthcare costs grow. >> rose: right. >> over the next five ten years, the situati is a little bit different and the mix ma ry. but ov the next 20, 30, 40, 7 10years, the key thing is helpg to reduce the rate of growth in health care costs withouthat, nothing else we do will matter. >> rose: a so theills that's going tcome out of the congress is going to be deficit neral. you've guaranteed that. the bill... an, in fact,
you've already en in terms of the scoring from the congressional budget offe, both the senate. the bill tt came out of the senate finance mmittee and the bill being consider by the house of reesentatives is not only deficit neutral over the first decade, t both of the reduce the defit in theecond decade. and i think it's important to emphasize that's without counting any ofhe steps that ll help tnsform the heal ca system and move it towards one thas oriented towards qualy rather than quantity. it's basically to a first apprimation, at least, not really cnting the effects of moving towar bundling payments accountable re organations, the affect on quality om a vaety of changes that are included in the legislation. >> rose:o i hear y saying the most important thing we can do is to get our. get health care cos in control? under control? >> in terms of the long-term fiscal a opposed to t medium-term, absolely. more will be necessary. weace a deficit in social security and there arether
problems. >> re: medicare and... >> medire and medicaid are t key drivers of ou long-term fiscal problem. in order to help contain their cost growth over theong term, we nd a new heah care system that h digitizednformation, so health information technology in which that infortion is used to assess what's rking and at's not me intelligently and in wch we're ying for quality rather than quanti, whil also encouraging prevention and weless. >>ose: on this progr with you is neil ferguson, whoou know well... or roh of, know his ids who basically is arguing that whave a huge problem facings because we can't deal with our dicit andat some point the chinese fefkally are t going to take our debt anymore, they'll nd other places to invest their money. and en that happens, the's political to deal with the
deficit. >> let's first be clear about the immediate situation d why wee eager to aress our mediumerm deficit. first, with oord the medium situation, long-term rates rein quite low, under%. if that's ntinued throughout the rest of this yr, it theby lowest nominal intere te since the 1950s. the currenaccount deficit ich is a refction of how much we're borrowing from abroad has fallen i half as a share of the ecomy over the past tee years. >> re: how much of that is because ofhe global economic receion. >> my point i for right now u.s. treasury securities main the safe investment in the worldnd we are addressing the immediate economic csis as we should b and i think in my discussions with cnese and othe creditors there's recognition of th. there's also recognition that we needo address the key driver of our long-term deficits, health care. one of the rsons, however, that wwant to get ahead and as soon as we're done with health care turn to reducing our
dium-term deficits is toake sure we don't windup in the situation in which invesr coidence starts to turn and there are concns about the trajectorye're on. we neeand are committed to getting aad of that so that we don't face a fiscal crisis. nooi. >> iit the belief of the administrationhat the idea of decit has traction as a huge problem main street in and it'sot just an idea that is talkedbout by peopleho have a gre knowledge offinance. >> i think so, the probl is not lack of conrn about the ficit, there's plenty of concern about the defic. thproblem is conce about the deficit is widespread, but all of the specificsteps that you could take to address the deficit run intoither constiency politics or other prlems. it's so vypopular to complain about the deficit but many of e specific ste that you could take to address itare unpopular. d that is the fundamental
challenge that we are facand that we need hp both from the amican public and thecongress in addressin >> rose: what e your numbers for next year? for 2010 in terms of economic growth? >> well, we are tually going to beupdating our economic assumptions as part of the budg that we put out in february and i'd like to reserve an dated set pjections for th point. >> rose:s itbove 3%? >> it is worth noti that currentlin the last quarte as younow.... >> ros 3.5%. >> ...th economy grew at 5%. one of the this looking foard in 2010 that we a motoring is state and local governmentface significant deficits and that will be a drag on the ecomy. e inventy cycle, which will help to push economic growth... propel economic groh later this yea and into earl next year m start to reverse. >> rose: there's also this qution, and is raised about e chinese projections and ised about other projections. whose assumptionso you use?
what numbers a vooibl to base your decisions? >>ell, we... the most recent t of projections that we used for mid-sessi review re very much iline with the blue cp private sector forect. >> ros okay, this is goldman sachs and j.p. morgan and a whole variety of pple that do that. >> and without pre-judging exactly wherwe wind up for the february budge, i would expect them again be in le with private sector forecast. and i think tha is... that helps to prove credibility to the efforthat wee undertaking. our numbers are in line with otherutsiders, so that there's no concern they're being tilt onway or another. >> rose: what' happened to young ople in this recsion? >> well, onef the things that i touched upon my speech in this mornthag recessions hit yng people particularly hd. not only if their parents are laid o in which there's an effect on high school dropout rate but evenor those who are not directly affecte
their parents or familyembers are not unempled. graduateing into a recessiohas an adverse impact on yourages and thisffect persists and in partular the evidencesuggests for each percentage pot increase in the employment rate initial wage are depressed by 6% upon graduation and en 15 yrs after graduation are still 3%ower than otherwise similar gradues in other years. and that's for each percentage point inease in unemployment. for those who are college seniors today, when they entered college, the unemployment rate waabout 5%... perctage points lower thant is today soou can multiply those figus to get the ultimate impact. >> rose: how do you factor i two things: o is interest rates and where theymight be in a decisi by the federal reserve. and also how d you factor in wh will be theollar which will have an influence on exports and imports? >> inhese economic ojections? >> ros in your projections. >> again, a variety of ecomic
variable not just theones th you mentioned but also inflation and a whole series of other asmptions gonto the macroeconoc projections that form a key part of our budg projections. >>ose: when you look ahead, at boar reis you the mos >> well, balaing the key competing decits. the very real deficit we face in terms of econoc aivity beuse in terms of prospes for you graduates, they're being directly affecd by how aggresvely we attack that problem. unrtunately, there'some nsion between those two issues. how ickly one should move towards fiscal deficit ruction and away from trying to address our short-term economic crisis is one of the key this that.... >> rose: show mow me how that tension takes place. >> in paicular in the short n in an econoc crisis le we have faced, is a higher
deficit helps to bolster croeconomic demand, theby, r example, helping aten wait the effect on new gradues. in other words, in a economic crisis like we face gh,er benefits promote macroeconomic actity. over the medium term, however, the situation flips. imagine a bids, for example, that had a businesslan of rapid growth for a year o two to address some crisis and then dramatic decline. th would be a veryifficult business plan toxecute off. that's precisely what we nee to do as a nation. >> rose: do need a stimulus? >> again, growth was 3.5 in the thd quarter, the labor market remain unacceptably wea, we are constantly reassessing our options wi regard to boosting job growth but for right now, at least, we are in the mode of cafully mitoring and
sessing options. >> rose: here's at paul krugn said on monday. "what i keep hearing fm washington is one of two arguments, either the stimulu has failed so we shouldn't do anymore twthe stimulus has succded, g.d.p. is growing so we don't needto do anore. e truth is the stilus was too little of a good thing it heed but wasn't big enoug, seems to be too cplicated for an era of soundbite potics? can we afford do more? we can't afford not to." paul krugman. >> well, again, i think what we did was a very aggressive step much more aggressive than many people wanted. it's yieldingenefits. we'rseeing it pla out and assessing the situatio >> rose: whatdon't you know that y wis you kne >> oh, boy, how long do u have. (laughs) >> rose: it willelp us understand youdilemma if you'll tell us that. >> i think thereere two or three things that if i had a crystal ball woue.... >> ros enormoly helpful to yoin your job. >> but w need to realize th crystal ball doesn't exist, at
least with perfect clarity. one is the pathf enomic recoverynd whether we willor won't ce an iss 2010. one the things w want to t avoid, and ihink it's crucial tovoid is we don't want t repeat the mistake of 1937 when fiscal support for ecomic for the econy, that fit categor we're talking about, was withdrawn o quickly and we threw the economy bac into an econom downturn. that would not bgood for anyone and we need to avoid that outce. so coming ba to the discussion we had earlier, if we knew for su how much the escape veloty was in terms of economic aivity andwhether that would outweighhe drag from state and local deficits, the inventory cycle and other forces, th would be enormously helpful indesigning the opt malpatht best path forward to move from aeriod in which we need highe defits temporarily
order to help sport the economy, in needing low deficits to aid harming the econom >> rose: another thing aued by niall first deee swhon is on this programhat i taped earlier, it is that. he says that... he asks this question. do the peopl inashington undersnd that inevitably china is going to have a large ecomy than the united states and a more domina economy an the united states. >> well,here are a series of academic analyses that suggt when tt pentialrossover point couldbe. >> rose: somewhere betwe 20 d 205 >>ne of the things that of course bomes difficult is projections at far out subject to significant unceainty. i thinkather than tryin to point pnt thatdate, theore point thing fous to do is to be investing in as much awe can in making our economy as prodtive as possible. that means not ly aressing thproblems we have alrea
discussed bu importantly things li things like continuing to improvour educatial system. rose: climatehange, frastructure. >> so there's actlly another set of defics that we han't touched upon in terms of inveing in key priorities le education, like infrastructure, ke protecting the pnet. >> rose: that was partof what the stimulus proam is pposed to be out, wasn't it? >> the recovery a involved stting to address some of those issues. it's not aanacea. >> rose: if you look at e economic growth rate, ho much of it was because of the stimulus program? >> well, estates suggest that the recovery act aed three to four rcentage points of economic actity in the trd quarter andverall economic growth was 3.5 sone can say tt all of it can be attributable the recovery act direly or indirectly. you need to rememb that 3% to 4% estimate to the recovery act involves affects indirely on consumption forhouseholds and it'sot... people think
recovery act, vernment spending and instead a l of the facts tax relief which then spurs household conmption or aed economic activity which helps businesses inves and so a lot of the effects are indirect. >> there has been a release of peop from the business community whvisited the white house-- and by that i mean not necessarily the presiden but include the presint-- but it executives lik jeff immelt and others, it's all public out there on the recd now. what are they telling you, the business people? you just came from meetingsin new yorkith business people. e they telling you you're not doing enough, weant you do get ur hands off the economy? what are they saying? >> it varies,s you would expect. >> rose: or get your hands off the private sector >> it varies. they are, like us, nitoring thlabor market and whether job growth is picki up. >> rose: but do they see the wod like you see i for the
most pt? >> well, for the mostart in term of underanding the dynamics they will oen reach somewhat diffent judgments but that'satural and their judgments are not l consistent wi one another. >> rose: inderstand that. but what the grea divide? is there a basic divid between what you're hearin from the business cmunity and what you're dng? >> i d't know that i would point to a big divide. i think, again, there's been a gnificant amount and, frankly, one of the things that's beneficial i terms of outreach not only liz beaders but also to progressiveand unns is to make sur we're hring their concerns and c deal with them. >> rose: that you're listening. >> tt we're listening. >> rose: wt's the great debate within thedministration about where to go. we clearly know, sort of, what the... wknow what the discussion is about afghanistan. 's clear. we've heard. there's en enough reports about this reconsidetion of a strategy at's the... >> well, i hope it's enough of a
family that wrenot going t aienough of the laundry.... >> rose: it'sot laundry. it's helping us understand the debate that'sgoing on. >> i would like torotect the internal disssions. >> re: i'm not asking you to tell me who'soing wha i nt you to tell us, my auence, ect play's the push-pull that youuys are trying t figure out. >> some the tensi wes fe, the dressing, the short-ter macrohole at the same time w fa a lonterm fiscal problem. constantlyssessing the state of the labor mket and whether additionalffort is or isot warranted. a set of decisions that, again r not surprising abt whether various prisions that are expiring at th end of thisyear should or should not be extended. >>ose: like tax cuts? oh, unemployment benits, right. is up >> those expire a the end of next year. and then, course,here's st a whole ries of her policy issuesre conantly in the mix fm implementationof the recovery act, we have important investmentsin health
informatio technologynd broadbanin which there are licy discussions going on. so a very active internal discussion. >> rose: iope you'll come back and tell us aut it. >> i will come back, i don't know how mh i'll tell you abouit. thank you. >> re: thank you very much. a pasure to have you o the broadcast. >> i appreciate bng here. >> rose: peter orsg, the director of office of management and budget. he's the man that between now and feuary will put togethe your budget. then onche putsogether your budget congreswill consider it. bas in a moment wi niall fergon. stay with . niall ferguson is here he is an economic hisrian, a prossor harvard, he is an autho you may also be familiar with his domentaries broadcast on pbs, his writings about the economic crisis and a potential rupture in u.s./china retions have
received much atntion and controrsy. his most rect book is now in paper back, it is called "the ascent of money, a financial history of the wor." i am pased to have him back at this sble, welcome. although it was different ble that we still use. this is a little smallerable. >> did youreak it? did you throw at someone >> rose:laughs) turned it ov on them. okay, economic recovery. inthe united states, quarter, 3 .5% growth, is there a globa economic recovery under way? >> think there' a glol economic recovery wch looks actually raer more sustainable than the u.s. covery. most of the u.s. recovery i in the form of stimus from governmentthe cash for clunkers program and t encoagement to first time home buye. that accountefor a really larg pcentage. >> rose: more than 50? pretty closeo half. you add the two this tother then the rest ofit has to do with inntories. don't think this is a
sustainable recovery yet. the recession is technicly over but will be very surprised if the ntquarter's numbs are as good because these progms are piring or have eired. the global recovery is more interestin because cna and not only cha alsondia and brazil, us a whole bunch of other mainly asian economies are gring much fasterhan i thi ybody would have prected six months a. not man people back in in the dark dayof the sprin thought that even chinaould bounce backhis strongly. bu with growth n at a anal ratef around 10% and intestingly consumer grth in china owing even faster than that, there's clearly a global recovery. t the engine o growthis not the united states. for the first time-- and one might say in a century-- the engine of growth in the wod economy iso longer the uned states it's china. >> rose: but it hadn't been e united states for number of years. >> the enginef growth in the world economwas china plus the united states in the last te years. it was very muchhina plus the
united states. you can figure thi out. if you look at the decad running up to the csis, 1998 to 2007 two fift of total growth in e world economyas china plus america. t of that two fifths, the united states s the lion's share just because it's still the ggest any the rld. >> rose: and how muchof it these do wh the chise stimulus? >> a lot becae that in relative terms ia very, very big shot in the arm of china's economy. plus, china's stimulus kind works better. it turns out that.... rose: that'sthe way it i wi a command economy. you have have kings in policies where you aim to stimulate demandthrough msive governme expenditure more easily in a conolled economy than in an open economyike that of the united states. which is a point the canes made in the 1930s ifou look athe 36 classic. in the german edition, canesays at the policies he recommend of deficit-financed government pump pming will work bett in a conolled totatarian economy than in afree open
economy and that's still tru toda >> rose:o what'sthis sort of... ur own sen of the american economy ovethe next two or three years? >>ell, i'm relately pessimistic about haw howe ft growth is going to be. thadministration earlier this year forecast th the econy would grow xt year b3.5%, then by 4%, then by 4.5% after that. i thin that's highl unlely to hpen. myuess that the economy will grow in realterms at closer to 2% a year. for the xt few yrs. and the reasoi think thats that the u.s. consumer just can't bounce back in the way that we've been used to seeing in prious ressions. 've reached the lims of levege on household balance sheets. when you've got debts equivalen to arod 120% of personal disposable iome, there's no way you can back out to the shopping mall even if the crit card companiesere cutting you some sck, which there not. so i think if the u.s. coumer is essentlly going to be
behaving in a psimonious, even thfty way, there'sno way the u. economy can grow at the rates we've see in the past. >> ros that the bind we're caught in? on the o hand wve been living in this consumption society ere china and other aces have been a saving economy and no wed we need to a csumption economy to fuel our economy even though in e long term need to be a savin econom >> i think this the proble and there' no way that yo can have the old style debt-eled consumption that wast the heart of our growth really over the last0 years once you reach this level of indebtedness. so that game is over and we're in the proces of a huge global rebancing which requires americans toecome more thrifty and requires asians to become rather more profligate. we need chineseo go out shopping. rose: but that's tir coern, whether they have created a domestic demd that will replace e international demand forhat they manufacture >> gradual they are moving in at direction but you cat do
that sort of thing overnight. there is some evidence-- i w in hon kg cently talking about this to people who e expert about t chinese consumer-- tre is evidence th are going out and shopping. thers a bit of a myth that the chinese householdsre big savers. that's not true, most of the vings that goes on in the chinese economies corporations who make re money than they know what todo with. so chinese households are saving less and they are spending more. but you c't transform a culture as thrifty achina's in thspace of a few months. this will takeears tonfold. >> rose: the key to can t chinese ecomy is creating a manding middle-cla. >> right. you ne the end to switch chins manufacturing to domestic dand and ay from foreign dema. thchinese mol has been port driven really f decad now, butarticularly for the st ten years. th focused on getting a bigger and biggerarket share, particularly of the u.s. consumer market but al the european consumer market an
ey did this by keeping their currency weak and by becoming.. >> rose: and enoous pressure on t part of the united states and others t get them t.. >> this pressure achieved nothing. on t contrary, when the crisis struck, cnaanceled all the slight appreciation they'd allod and reverted to a raight dollar peg. now, that's reay,eally portant, charlie, becau o they the u.s. canet itself going again is by letting the dollar weaken. because that will stimute u.s. exports and that's something at unofficially, tacly has become american pocy. but e chines will piggyback on that. >> rose: you will never see polician say that. >> they're null in favor of the stro dollar. >> rose:laughs) exactl >> and the more they say that, the more you know the dollar is goingdown. that's a long esblished american actice it gs back to the 1970s when john connoy, thereasury secretary, said to the ropeans of the dlar "our currency, yourroblem." we're doing it aga this time around. it'set another devaluation
degned to get theconomy going. but thechinese are piggybacking on this becausef we go dow the currencyof china goes down, too. interestingly, china is not only grong its own domestic mand it's also building up its expo market share again. anyby who'sing onthe wrong side of th process, like that ropeans with their increasingly strg euro orthe japanese with th strong yen is geing killed because the chinese are ju killing their manufacturing exrts. >> rose: let's talk abo the prospect for america because you make these terrifying analogys to theritish empire. you know, that our bestdays are behind u? that chai re a, which was a grand bargn, is going to fall apart. that our dolr will not be the reserve currency. that we are looking at a deficit that is out of control. so we shouldust give up. >> one shou never ge up. at's an important thing to
bear imind. but one should always bewaref british htorians. >>ose: (laughs) exactl >> my friend pau kennedy did this in the late 1980snd it was the soet union.. >> rose: "thend of america" or whatev his phrase was. >> one haso look carefully that the probls the united states faces and draw analogys with great caution >> rose: but you doit. >> well, i do it. let meut it thisay. at the end of worlwar i the united kingdom was as indebted in relatioto its grant as t united stas istoday. if you include privateeath, most o britain's debt was public dea. toyhe united states has a bier mountain ofprivate debt. they have there's a $9 trillion of cumuls of debt. thishere's no question that's unsustainable. even paul krugman who loves deficiwould acknowledge that's an unsustainable path.... rose: what did cane say about defits? >> cane'dvice... if he we
alive toy he would say this is excessive and unsustainable because most of thist is not a canesian smulus package. st of it is a structu deficit because the united states spends much more ery year regardls of whether there's boom or bust than it raises inaxation. this can't be justified in canesian terms. it's a fundantal crisis of public fince which the political class in whington seems unable to address. >> rose: and that's the proble, they don't the political will to dohat >> it is a qstion of polital willecause the undlying rength of the u.s economy is almost ctainly greater tha th of the britishconomy in 1945. but public finance-- a this is one of the points i try toy make in "th ascent of money" can trump yo economy en if you have aonderful work force, tremendous natural resources and all e rest of it. think of argentina. myorry is not only that thers a british imperial parallel butlso a lan american parallel here. thathe united states is in daer of evolving.... >> rose: with argenna? >> well, in the sense that argentina s about the
fourth-richest countfuy the wod a hundred years ago. and over that one-year period systemically blew it as a result of misnagement of its public.. >> rose: sthe currency was worth nothing. >> currency aer currency. how many currencies did they ha? how many defaults? >> t united statess on an unsustnable fiscal path and we know that path ends inne of two ways. you eith default on the debt or you depreciate it away, you inflate itway docr your currency.... >> rose: so we're runningout of money cause we... >> or u can end up with too much money. ther the opposite... >> rose: we run out of moy becae it's worless or you run t of money because, you know y've got all this debt and you can service the debt. >> what you run out ofis credit. remember, the united state relies on foreigners who hold half the deral debt to finance its borrowing hit. if foreigners lose confidence in e u.s. as a borrower, a if they lose confiden in the dollar as a currey, then ings can turn ugly quite quicy. that seems to be.... >> rose: do you think... i talk to these people as much asou
do, you kno they don't seem to me that they are about to be frightened th american ecomic future. i do not ar them saying o, my god, it over for america so we betterot, a, by any more dolls 0, b, we better not... better fd aernative investments. >> but these are the same pple who in la 2006 andarly 07 were tells me and phaps you two too that there would never be anoer recession in the united states because the great... >> rose: what abt the chinese whare buying the debt? they're saying "we buy t debt beuse when we look aroun, it's the bestlace, becausee still have confidence i amica." >> well, that's not really what they thi. may be what ty say. two thin. first of all, they're buyg lesshan they used to when we need them to buy a lotmore. in 2007 at peak they were buying three quarter of all the new debt issued the u.s. treasury. now it's about 10%. we are issuing much, much more andhey're buyinguch less because they kneel $2 trillion
is about enough, really. if you look a their inrnational reserves whichre predominany held in dollars, they have a huge.... >> rose: it was about billion dollars a dayor a while. >> it wa anextraordinary amount of money flowing from china to the unitestates to financour borrowing habit. >> rose: so we cld buy their goods. >> so we could buy their goo. vend financed if you like and it workedwell for aime. but i always argued that chimerica was unstab. it w a pun on the word chimera. it's proveto be from the advante point of e united states... i think it served china much bette than it served the united states they have been growing their economy at 10% a year,hey're on track to overtakes by 2027. >> rose: overtake us not per capita but overtake us in terms of the size of the economy? >>n terms ofthe grpt. no iper capit terms, that ll take many, my years. >> rose: a billi plus populati. right. so you they will hapn when? 2030? 2050. >> well, jim o'kneel ofoldman sach his projection was o
2027-- ilways joke on april 14 2: in the afternoon, china's g.d.p. exceeds tt of the united states. but it's inhat ballpark. therhasn't been a point i the last centu when anybo looked like doinghat. a few ople thought japan might in the glory days o the 1980s. i think the chinese challeng is the more credie one. not because of the sheer ze of china but also because they have a model that seemsto deliver even if it delivers at the expense of others, that's why i think that you are crency policy is a source of concern. >> rose: butyou alsoargue about china thats their economy grows, their politic have to change and they're unlily to change and therefore when theame loo bad for them they're gog to turn nationalistic and then the probm becomes an aggressive china. >>his needs to be a coern as e chinese leadership changes. the next generation of chinese leaders i think ll be more sertive and they have up their eeve this wonderful tmp card.
if thing gorong-- and they may. let's facet, every asian econom miracle is punctuated by at least one financial cris. if things go wrong, ty can call on a formidable popular nationism. that's sentiment which we know as historian cans always be caed upon when the going get you have to economically. >> rose: your premise isbased onwo things. one, the chinese political system will not change, a. and, b, thenited states n't have v the pitical will to deal witthe deficit. >> i think both of tho are reasonle assumptions. >> rose: on is very same program that you're on the director of e office of management andudget says that we will take the deficit of 2009 and by 2012, 2013, we will halve it. by the time the president fishes the firs term, we cut the deficit in half. so that suggests some political will, if you believe him, to do it. >>ell,t's... it would still thefore be aroun 6% of
gross domestic proct. now, that is very large deficit i any normal circumstances. to halve it from 12% of g.d.p. 6%oesn't constitute fiscal stable sags. you still will be borough around a tril dollars. >> ros it constitutes pgress for god's sake. >> it's progress. but myuestion is where this their plan to we get to budget balance. it clear from the forecast that he himself has made that the u.s.ontinues to run a deficit over a tenear horizon and if you loo further yond n years-- because it's very important do that- and take into accnt the unfunded liabities of the medicare and soci security systems,he sition of the uned stes verges on bkruptcy,ecause although we ha a 0 trillion debt, the unfunded liabilitys are $100 trilln. that'ssomething that it sms to me one c't likel dismiss. >>ose: rren buffett as we speak today made a huge multibillion dollar $30 to $40 billn investment in railways
ying "this is myonfidence in the american economy." >> wel good luck to him. >> rose: well, he's... he knows something aboueconomies and investments, esn't he? >> oh, sure, an his tra record has been very impressive until soery receny. and it's be less so. >> rose: it was le so last year but it's ce back. >> so it's possible that he's right d i'm wrong. i n't rule that o. and that all i going to b well and the u.s. isoing to bounc back. >> rose: are you bre paired to say "'s either buffett ome" in terms of analysis? >> i'mappy to bet with him although i probably can' put down quite asuch moneys he can his bet. i'm hlable academic. it does se to me a better man would put money on not just china but chins trading partners. would rather by australian railroads than amerin raroads because i know that stuff is bei shipped from australia to china i much larger quantities than i currently beingshipped coast to coasin the united states. i me, actually, freight trafficon u.s.ailroads is at an extraordinaryow level right now with very little sign of
improvemt. so he's aery optimtic man, i would say. >> rose: you think he's making a serious miste. >> i do. because i dot see that the united states n grow at rates rapid enough to make that investment pay cheap thoughhe price may be. now it's reckless of know take on rren ffett. but you knowhat? >> rose: wha >> ts is a moment in history when the thingthat have been true for his entire life y have ceased to berue. the biggest problemhat anybody face today is that their lifetime experience-- even their fe as long as warren buffetts-- is no longer a reliable guide to th future. why? we just missed a great depreson by a hair's breadth and we missed it by throwing a vast quanty of money at the u.s. economy. by running a deficit as large as we ran in rld war ii in peacetime. nobo knows where that will create unintended consequences that will slow the economy down. instinct is that will. >> rose: let me go toangent real quick. was this the wrong thi to do? to throw that money at aime
that 24 this economy needed somebody to do something dratic, are you suesting at the thingshey did was wrong? >> no. there were two policies, one of is which was more important than the other. the monetary policy that ben bernanke pursued at the f particularly after the lehma crisis laugh yeast, a massive expaion of the monetary base was the righ policy. that'she policy milton freedman would have recoended. rose: who was a monitorist. >> and saw the cause of e great depression as being bank failures andonetary tightening by the fed. we learned that lesson. the other polic, theanesian policy, invves adding an enormous deficit o top of an already larg structural defit. and don't think that that has been anything as imptant in getting e economy out of the depression scenario. and i think one has make that distinctn. the fiscalolicy could tu out to be okay as lo as we kw how stabilize it but right now we don. right now we are early out of fiscal control. and at some point, the world is going wake up to thatnd say
's no longer sense tobelieve pile these bonds up in a reasonable expectaon that the unit states will either depreciate the debt away by letting theollar fall thrgh the floor or will actually start to cal into question its own commitment to these payments fault is not a scenar we can ruleut, let put it that way. >> rose: default is not scenario we can rule out. default onur debt and therefore at does that mean? >> what ll happen first is that we'll default on the commitnts mad under the dicare and social security system thatdefault, thedomestic default on our, as it were, domeic creditors, is analmost certain outcome. the only question is whi president takes it? which president grasps that and admits w cannot possibly fulfill thosecommitments? the other questi of default seemto me less likely. we're not lely to default on our outstanding bonds held b foreigners. bu foreignersay begin to question the sustainility of a fiscal picy that requis us borrow a trlion dollars a
year. at they'll do en we do that.... >> rose:verybody believes that. erybody... wait, stop. everybody beeves that you caot... >> think owhat that means. >> rose: you cannot contue at the pace. everybody agrees wh that. buthey don't necessarily assume there are not policie and actions that can prevent th disaster of default that you are arguin are inevitabl >> of course they are. for example, t united states could introdu vueadded tax. >> rose: right. >> or a federal sales tax. >>ose: right. >> can you imaginethis congress do that? >> rose: i don'tnow. it depends on the options they ok at at the time. you have peopleike roger altman coming on this program saying "theye going to have to have a value addedtax." if they lo at this thing and niall fergusons saying "this is the disaster you fa perhaps they'll say,hank you, nil, we betterdo something and add a value add tax. maybe theyl believe you have to changthe taxing policy. >> but remember winston churchill who said the united statesoes all the rig thing when all the other things have
been exhausted. the reason i mentied default is notecause i ink united states is going toturn into xico or argentina overnight. >> rose: well, u almost suggested that elier. let me make this ear. ed for the to psuade invesrs toontinue to buy u.s. government bonds we' have to ofr them a higher interest rate for their money. now, when that happen the bonds go down price, t yields go up, our fiscal crisis immediately gets worse because the cost of servicing in vast $10 trillion debt goe up. that what worries me most. because what you could then get is a tuation where real interest rates go up an that' scriping f a heavily indebted econom just as it's crippling for a heavily indebted hsehold. that's why i worry about buffett's bet. at's why i think the u.s. could slow dn in2010, 2007, not speeding up. >>ose: who do you kn from ademe yashgs government, wal street, th believes exactly as you say? >> let meame just one. >> rose: name ju one. >> ken rogoff.
>>. >> rose: he's cominon this week. but he comes from thsame place. >> he comes from thesame iversity but not the sa place. he's a very distinguished economist who used to be in the inrnational monetary fund. and i think ver similar ways about this problem, to name b on i think ifou were tosk georgesoros is h optimist.... >> rose: agrd. geor soros... o thosethree i agree. so what about pl volcker, who's a distingshed american... former chairman of the federal resee. >> i think if anything he is more pesmistic than the two peop i just mention. ofourse, it's hard for hi to express publicly his disiet because of h official position. >> re: so you think the obama administrations just wrong aded? >> no listen. don't want to criticize some verylever indiduals who are grabling wh a huge.... >> rose: larry summers, tim geithn... >> these are some of the smartesteople in the world. i have huge regard for all of them. >> re: so trefore... what's
the diffence between them and you? if the peopleho have the power...hat's the difference between the ople who have the wer... >> chaie, they don't have the power! the coress has the power! th's what people don't understand abo the situation we're in. right now the esident proposes with his clever advisors helping him but congress disposes and it wille congress that decides whether the alth care bl ultimately adds to the deficit or does not. >> rose: b are you suggesting that if they hal theeficit in four years, that thas not putting us othe track to a balanced budget? if ty continue that kind of progress? >> it's n becauseheirer numbers. their ten-year budget don't put us o course for balanced budget, the put us on course to carry on brow ago trillion dollars aear as far the eye canee. that it seems is a recipe for trouble. there comes a point-- and this is onef the lessons of finaial history-- there comes a point when thenternational markets simplyan't take anymore. and what's ieresting about this is it's non-linear. it's nothat people gradually lo faith in the credit rthiness of a country or
gradually lose faith in currency as an internation reserve currency. it can hapn quite s.u.d. suddenly. exctations change. that's wha if british experience tells y. in 15, churchill still thought of the british empiras a migh force equal in powe to the sovi union and the united states. t it was a heavily indebte empire. de g.d.p. was about 250%. at's more, the british the embaed on health care reform. the national health service thinking that they had limitless funds t devot to rewording themselves to the sacrifices. >> rose: will remind you that the american health care system that is propose is supposed to beeficit neutral. >>es. we'll see. f it reay is. i'd be imessed. >>ose: but here ishe idea. nobo thinks that amera i.. the world order ishanging. and you point that. there's a new economi order and there's a new political order. we know there's a level ofhift of power to the east. and the present knows it, everybodin europe knowsit.
that'sot an idea that people are suggestg is n true. >> but it's not that they... don't say it, but do we grasp what this mns? r 500 years the world has moved in the direction of the west. and the united stas was the last of thereat western powers to benefit fro this shift of resources from east to west. we're living through a change that ends 5 years of history, a eat rebalcing of the wor thatill see asi powers become equal in their statue in onomic terms and tn geopolitical terms. >> re: is it a zero-sum game. >> it can be. >> rose: but is it? or not? maybe the united stateis better off with smaller share of a larger pie. >> of course. bu you know, the share is always going to be getting smaller as tse asian economies grow. and ase slow down. and i think the big question which i don' really s being addressd isow do y cope with the se of a credible rival? the soviet uni was never going toave an economy the same size as the uted states. never came close.
and today russia's economy is the size of the u.s. we are facing a genuine superpower, a real economic rival. and i don't thinkmerican foreign policy has yet adapted to that. i think's an assumptio with chimerica. >> rose: whatwould it d to suggested th adapted tohat? what would it do? >> let me p it this way. the is a very clr dilemma ich isn't often enough diussed. do we accommodate china recognize ando we accept, as britain accommodate it had rise of the united states, thatne day it wille the dominate poweof the wld and we better ve with that. or do we try toalance it the way the unit kingdomsought to balance thrise ofermany by makinglliance with other powers that regi. india being the obvious candidate. that's the dilemma thas right at the heart of u.s. foreign policy tod and yet i have t impression we're so distracted by our colonialwars-- and i ca them conial wars consciousfully iraq and afghanistan, that don'tsee that picture. the chineseee it clearly and
at least one of the superpowers in this game is thinking in the ght kind of terms abo the way the world is going both economly and geopolitically. >> ros niall ferguson whose book is called "the ascent of mone which is the title his documentary. thank you for joing us. tomorrow night, rmer vice presidt al gore. captiong sponsored by rose communications captioned by dia access group at wgbh access.wgbh.org